Kia Fastest-Growing U.S. Brand Suffers in Hyundai Shadow

Kia and Hyundai have challenged Japanese and American carmakers by improving quality, design and fuel efficiency. Photographer: SeongJoon Cho/Bloomberg

May 1 (Bloomberg) -- Kia Motors Corp., with sales rising 78
percent from 2008 to last year, has been the fastest-growing
brand in the U.S. What it hasn’t been able to do is shake the
role of little brother to larger affiliate Hyundai.

Hyundai Motor Co. is Kia’s biggest shareholder, and the two
Seoul-based automakers share a chairman, vehicle platforms and
powertrains. They also compete for resources and customers, and
that’s where the relationship is unequal: Hyundai buyers
consider Hondas, Toyotas and Fords and largely eschew Kia. At
the other end, Kia shoppers are mostly looking at Hyundai.

“For Kia it’s like the younger brother who asks a girl out
on a date, who tells him I’m actually more interested in your
older brother,” said Alexander Edwards, president of San Diego-based Strategic Vision’s automotive practice. “Only about 5
percent of all Hyundai buyers looked at Kias.”

While the rivalry between the Korean companies, which
operate separately in the U.S., mirrors that in their home
market and globally, Kia still lags, even as demand for Soul
wagons and Optima sedans grows. The lack of awareness limits the
brand’s potential and forces the carmaker into profit-sapping
discounts, which have grown to double those offered by Hyundai.

“Kia never really came up in conversation or in my
research at first,” said Chris Ferguson, a Fairfield, Ohio,
resident who bought a Hyundai Elantra early this year, rather
than Kia’s competing Forte compact. “Don’t get me wrong, they
weren’t bad vehicles, but they seemed to be the economy version
of the Hyundai.”

Double Sales

After surging 36 percent last year, Kia’s U.S. sales of
cars and crossovers are up a further 32 percent this year
through March. At the current pace, the company may sell more
than 550,000 vehicles this year, more than double its 273,397
U.S. sales in 2008. Kia uses ads featuring Blake Griffin, the
professional National Basketball Association’s reigning rookie
of the year, as well as dancing hamsters to promote its models.

Hyundai’s U.S. sales are up 15 percent through March, and
may exceed 650,000 units, based on the company’s market share
forecast. Industrywide U.S. light-vehicle sales rose 13 percent
in the quarter.

Hyundai, while increasing sales less rapidly than Kia, has
managed to trim incentives by 26 percent so far this year to an
average of $823 a vehicle, while Kia has boosted discounts by
8.5 percent to $1,677 a vehicle, according to researcher
Autodata Corp.

Shopper Consideration

Hyundai is considered by about 20 percent of new-car
buyers, according to Strategic Vision, which surveys about
300,000 people a year for its automotive studies. That 20
percent marks a crucial threshold, he said, making Hyundai a
competitor to mainstream brands of Toyota Motor Corp., Ford
Motor Co. and Honda Motor Co.

Only 9 percent have Kia on their shopping list, Edwards
said.

Toyota is the most frequently considered brand, at 41
percent of those surveyed, followed by Honda at 37 percent and
Ford at 35 percent, Edwards said. While Hyundai’s consideration
level matches that of Chevrolet and Volkswagen, Kia’s ranks just
behind Chrysler Group LLC’s namesake brand at 10 percent.

“If you look at reverse cross-shopping data, 16 percent of
Toyota buyers said they also looked at Hyundai,” he said,
citing Strategic Vision data. “Only 9.6 percent of Toyota
shoppers say they looked at Kia.”

Diversified Lineup

Hyundai’s addition of premium Genesis and Equus sedans,
“helped enhance brand awareness as it targeted a wide range of
customers, which led to improvements in Hyundai’s brand value,”
said Kim Byung Kwan, an analyst at Mirae Asset Securities Co. in
Seoul.

“Hyundai has been aggressively marketing their products in
U.S. for quite some time; Kia has only just begun,” Kim said.
“Hyundai’s lineup is fully diversified, from small cars to
luxury sedans.”

The Hyundai-Kia partnership is among the industry’s more
unusual. The brands aren’t divisions of a single company and
maintain separate factories, finance, sales and design
operations. Still, their global headquarters face each other in
Seoul and many of their models share identical underpinnings.

“Some consumers may know the two companies share a lot,”
said Ivan Drury, an analyst with Santa Monica, California-based
Edmunds.com.

Their relationship started in 1998 when Hyundai Motor led a
1.18 trillion won ($1 billion) purchase of a 51 percent stake in
bankrupt Kia. Chung Mong Koo, chairman of both, placed his son,
Chung Eui Sun, as president at Kia in 2005. Hyundai now holds a
34 percent stake in Kia.

The companies are South Korea’s two largest carmakers,
dominating vehicle sales at home with a combined 75 percent
market share in the year’s first quarter.

Plant Cooperation

Unlike the alliance between France’s Renault SA and Japan’s
Nissan Motor Co., which share equity ties, platforms and
components, Carlos Ghosn, chief executive officer of both, keeps
Renault out of the U.S. to avoid direct competition with Nissan.

U.S. factory managers for Hyundai and Kia say they compete
with each other to increase output and eliminate production
defects to meet quality goals set by Chairman Chung.

Hyundai’s Montgomery, Alabama, plant also makes engines for
Kia’s factory 90 minutes east in West Point, Georgia. In return,
Kia builds Santa Fe sport-utility vehicles under contract for
Hyundai on the same line that makes its own Sorento SUV.

Rising U.S. sales helped Kia post a 26 percent increase in
first-quarter profit, the company said last week. Kia’s 1.2
trillion won in net income for the period beat the 948.2 billion
won average of 26 estimates compiled by Bloomberg.

‘Just Another Brand’

For Kia’s 755 U.S. dealers, “Hyundai is just another brand
we compete with,” said Scott McKee, a spokesman for Kia’s U.S.
sales unit in Irvine, California.

Hyundai’s view is similar. “When our executives are in the
conference room, we’re talking about Kia the same way we talk
about Honda, Toyota and Ford,” the top brands the company
competes with, said Jim Trainor, a spokesman for Hyundai Motor
America in Costa Mesa, California.

Along with the Soul and Optima, Kia’s sales gains come from
its Sportage and Sorento sport-utility vehicles. Those models
distinguish it from Hyundai, said Andrea Pereira Pfister, who
recently bought a Sportage.

“The interior sold me; the leather seats feel really
luxurious,” said the Long Beach, California, resident who does
promotional marketing. “If I’m going to buy an SUV, I’d go
hands down with Kia.”

Hyundai’s Santa Fe, Ford’s Edge and Nissan Motor Co.’s
Rogue were also on her shopping list. “The Hyundai kind of
seemed like the ugly older sister,” Pereira Pfister said

Still, Kia products don’t win across the board. “It’s kind
of specific to their SUVs,” she said. “If I was going to buy a
sedan, I’d definitely look at the Hyundai first.”